If you’re working hard to pay off your credit card bill every month, the possibility that you’d overpay your bill might be laughable to you.
But you’d be surprised by how easy it is to overpay – even if you’re barely squeaking by with your monthly payments. When you overpay your account, it’s called a “credit balance.” Read on to find out how it can happen and what you need to do to get your money back.
How a Negative Balance Can Happen
If you pay your bill in full every month, well, kudos to you. That’s awesome. Keeping a balance that dances around the zero mark is great for your credit score.
But living on the edge, even in a good way, makes it easier for an overpayment to occur. It can also happen when you maintain a small balance.
Think this is far-fetched? Here are several ways that you could end up with a credit balance after overpaying your credit card bill:
- You have automatic payments set up, but you decide to make an extra payment manually using your credit card issuer’s online payment system (or sending an actual check in the mail). It’s easy to enter the wrong amount – or make math errors – and overpay.
- You could get a refund on a purchased item. Let’s say you bought a microwave oven, but it didn’t work properly, so you decided to return it. You ask for a refund, and you get a statement credit. You’d already paid for the oven on your bill, so you end up with a negative balance.
- You have a credit card that offers a reward or a sign-up bonus as a statement credit. For instance, maybe your card offers a $200 airline fee credit. You pay off your balance, but then get reimbursed later for eligible expenses with a statement credit. Sometimes, it’s a timing issue between the statement credit and your payment for the full balance.
What to Do if You Overpay Your Credit Card Bill
If you’re worried you’ve lost your money, you can relax. The money is legally yours.
Here are your options, and they’re pretty simple:
Use it for future expenses. The issuer gives you a statement credit for the amount overpaid. The credit balance is then applied to your new purchases.
You use the credit card the way you always have, and eventually, you’re no longer in negative balance territory. If you aren’t hurting in terms of cash flow, it’s the most hassle-free way to handle this. And it’s a good choice if you use the credit card regularly.
Ask for a refund. This is an option for someone who needs the overpaid amount back in order to pay other bills. It also might be the best choice if the credit balance is on a credit card you don’t use often.
If you want a refund, you can write to your credit card issuer and request it. The Truth in Lending Act specifies that the issuer has to refund the credit balance, minus any “intervening purchases or other debits” as determined by the creditor, within seven business days after it receives your request for a refund.
Just in case you miss the overpayment and discover it, say, three months later, you’re still protected. The issuer must make a “good faith effort” to refund the credit balance within six months.
Misconceptions About Overpaying Your Credit Card Bill
I’ve seen suggestions that overpaying your bill is a way to increase your credit score. I hate to burst anyone’s bubble, but a credit balance on a credit card account does not boost your credit score.
The misconception revolves around the utilization ratio, which is the amount of credit you’ve used compared with the amount of credit you have available. The lower the ratio, the better for your score.
The score’s algorithm picks up a negative balance as a zero amount for the account. So, you can’t get a negative utilization ratio on one card to offset high usage on another.
Another myth to bust, while we’re at it, is that you can’t raise your credit limit this way. Well, sure, you have a credit balance, but it’s money that’s owed to you. If your credit limit was $4,000 and you have a credit balance of $200, your credit limit is still $4,000.
My point is that there’s not a good reason to do this on purpose. But if it happens by accident, then accept the credit balance as a statement credit or ask for a refund. And stay on top of this until you see the money returned in your account or in your mailbox. It’s your money, after all.